With 2019 elections in sight, investors should invest 50-60% of portfolio in equity via SIP

The Federation of Associations in Maharashtra welcomed the interim budget. It has stated that it is a superb budget for all people in general.

With markets expected to be volatile due to elections, one should look to invest through SIPs which reduces the need to time the equity market, Raghvendra Nath, Managing Director at Ladderup Wealth Management, said in an interview with Moneycontrol’s Kshitij Anand.

Q. We saw a huge rally in the benchmark indices in November but the broader market got a muted responses. Do you think the pain in the mid-cap and small-caps are here to stay in 2019 as well?

A. There have been mainly five stocks that have contributed for the majority of the gains in the Nifty. We have been witnessing good corporate earnings growth over the last two quarters but the markets have not picked up the momentum.

The valuations of the midcaps and smallcaps have corrected sharply over the last one year and they seem to be trading at a fair valuation right now.

After the recategorisation of mutual funds in March, the exposure of mutual funds schemes in small-cap stocks have come down that has contributed to the sharp fall in prices and to some extent this is also true for midcaps.

Besides, even retail investors and traders were primarily overexposed to smallcaps and midcaps. It is definitely going to take more than a year for many of these small-cap and mid-cap stocks to go back to their highs.

Q. What should be the ideal strategy for investors for the next one year?

A. With markets expected to be volatile due to elections, one should look to invest through SIPs which reduces the need to time the equity market.

Also, with the correction in the broader market over the last one year, an exposure of 50-60 percent in the equity market could see healthy returns in the next 5-7 years.

Q. After a muted 2018, what are your predictions for the year 2019?

A. 2019 should be much better than 2018 simply because the macro parameters like oil, inflation, capacity utilisation, interest rates, corporate profits and currency, all have been showing signs of revival and may continue to strengthen in the coming quarters.

At the same time, the valuations of most stocks and sectors have corrected quite a bit. While the next five to six months would indeed be volatile due to uncertainties due to impending elections, the second half of 2019 should see positivity coming back once a new government is in.

Q. The large part of the recovery in the year 2018 was led by heavy index weights while on the other small & midcaps remain muted throughout the year. Do you think the broader market is likely to remain under pressure?

A. Besides the correction that India has witnessed on the back of the credit crisis in the NBFC sector and the general weakness in small and mid-cap stocks, the global headwinds are something to be cautioned about.

The US-China trade war could have global ramifications and any signs of a slowdown in the US economy may again trigger reactions in the stock markets globally. And on the domestic front, the possibility of a weak coalition government may keep the market under pressure.

Q. Which sectors are likely to hog the limelight in the year 2019?

A. It is too short of a period to make any comments because any sectoral play which is driven by macro changes. Just to play contrarian though, sectors like auto, infrastructure, and BFSI have the potential to rebound in 2019 having seen sharp corrections in the last few months.

Q. Do you think rupee will continue to appreciate in the near term?

A. Very difficult to comment on the short-term movement. The sharp depreciation of the rupee from 64 to 74 per dollar was excessive and unwarranted.

Unlike the long-term history of our currency, we have now been witnessing a moderate inflation for many years and also generally lower interest rates.

If these two factors remain in check the potential depreciation of rupee against USD would be much more gradual then what we have witnessed in the past.

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